The recent rise in mortgage rates could place a drag on the weak housing market, potentially driving home prices still lower and pushing more borrowers into foreclosure, said Janet L. Yellen, president and CEO of the Federal Reserve Bank of San Francisco, in a speech this week.
Yellen said other signs of economic recovery point to the six-quarter long recession coming to an end, but she expressed "concern" about mortgages, which have trended up since hitting historic lows earlier this year.
The number of homebuyers whose home values have slipped below the debt they still owe on their mortgages, called being in negative equity or under water, has reached as much as one-third of mortgages, according to a report from the Federal Reserve Bank of New York.
And the rising mortgage rates have cut down the number of homeowners refinancing their mortgages. According to the Mortgage Bankers Association, refinancing activity fell 30 percent last week to reach its lowest level since November.
In light of this trend, the Obama administration yesterday announced expanded eligibility for refinancing under the Home Affordability Refinancing Program (HARP).
Participation in the program had been less than expected, but mortgage servicers said the program has helped those who use it. One company said the program has helped borrowers’ interest rates go down 1.5 points on average, reducing monthly mortgage payments by an average of 13.5 percent.